Wireless on Forest Hill Pty v Fone Zone Limited & Anor

IN THE SUPREME COURT OF VICTORIA	Not Restricted
AT MELBOURNE COMMERCIAL AND EQUITY DIVISION PRACTICE COURT

No. 9716 of 2008

WIRELESS ON FOREST HILL PTY LTD	Plaintiff
v
FONE ZONE LIMITED & ANOR	Defendants

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JUDGE:	HANSEN J
WHERE HELD:	Melbourne
DATE OF HEARING:	27 November 2008
DATE OF JUDGMENT:	27 November 2008
CASE MAY BE CITED AS:	Wireless on Forest Hill Pty Ltd v Fone Zone Ltd
MEDIUM NEUTRAL CITATION:	[2008] VSC 534

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Practice and procedure – Interlocutory injunction – Termination of dealer agreement – Implied term of good faith assumed arguable – Alternative bases for termination – Whether damages an adequate remedy – Discretionary considerations – Injunction refused.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J G Levine	R M Ambrose
For the Defendants	Mr J P Moore	Minter Ellison
HIS HONOUR:

This is an application for an interlocutory injunction to restrain the defendants until the trial of the action or further order from acting upon or implementing a notice of termination dated 22 October 2008 of a sub-dealership agreement made between the parties dated 1 August 2008.
The facts have been deposed to in a series of affidavits and I consider that for the purpose of dealing with the application, it is not necessary to set them out. If I considered it were, I would have to reserve my decision and I do not think this case is going to be assisted by taking that course.
The facts necessary to refer to are set out in a chronology at the outset of the written submission of counsel for the plaintiff. It refers to the arrangement between the first defendant and Telstra Corporation Limited under which Telstra agreed to provide or supply telecommunication services to the first defendant and other entities nominated by it. Then, in about the middle of this year, the plaintiff determined to open a retail business selling phones and arranging access to Telstra facilities, and for that purpose took an assignment of a lease of premises in High Street, Thomastown. Then, in about July, the plaintiff, the first defendant and Telstra entered into an agreement in which the first defendant and Telstra agreed that the first defendant would appoint the plaintiff as a nominated dealer of the first defendant and Telstra would be the exclusive supplier of telecommunications equipment to the plaintiff. It is conceded that the true nature of this latter agreement in relation to the plaintiff is a franchise agreement.
On 14 July 2008 the plaintiff and the defendants agreed that the first defendant would appoint the plaintiff to sell communication services supplied by Telstra. This is called the sub-dealer agreement. There is contention between counsel as to whether this is truly to be characterised as a franchise agreement, the plaintiff submitting it is while the defendants submit for reasons set out in the written submission of defendants' counsel that it is not.
Then on 1 August 2008, the Telstra head agreement commenced and the plaintiff commenced to operate the business and had two employees “on the road”.
On 5 September the plaintiff commenced to operate from the premises, and on 15 September the plaintiff entered into a further lease of the business premises.
The unfortunate situation here is that very soon after commencing to conduct the business, the plaintiff fell into difficulty with Telstra in connection with the proper performance of the business in accordance with the requirements of Telstra and the first defendant. As early as 15 October 2008 the plaintiff received a request by telephone to permit officers of the first defendant to inspect and photocopy contracts procured by the plaintiff and ID verification, and on 16 October the first defendant sent an assurance team to the plaintiff's premises for the purpose of perusing that information. That led, on 17 October, to the second defendant suspending the operation of the plaintiff, of the business operation, pursuant to clauses 4.1(f) and 12.2 of the sub-dealer agreement and from that date the plaintiff has been unable to operate its business.
On 22 October the second defendant terminated the operation of the plaintiff pursuant to those clauses and on 20 November 2008, the plaintiff received a letter dated 10 November 2008 from Telstra which stated that the Telstra dealership agreement would terminate on 18 November. I say that the plaintiff did not receive that letter until 20 November, that is so asserted by the director of the plaintiff and I act on the basis that statement is correct. There is no evidence to the contrary of the sending of that letter by Telstra on or about 10 November.
In any event, the fact is, as appears by the letter, that Telstra has terminated the relationship, as had the second defendant. There is an argument made by the plaintiff that the termination by the second defendant was ineffective because it was the first defendant rather than the second in whose power that lay and that the step having been taken by the wrong party, so to speak, the notice is said to be ineffective.
One argument made by counsel for the plaintiff is that the agreement or agreements ought be read as containing a term, whether implied as a matter of law or ad hoc by reference to the principles in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[1], of good faith in the exercise of rights and powers under them. That term is relied upon. It is said that in purporting to terminate each of the agreements, the power to do so has been exercised unreasonably and capriciously in the circumstances and on false premises in the sense that fraud is alleged on the part of the plaintiff when in truth all that has happened has been some honest mistake that has been rectified. I am prepared to accept for the purpose of the argument on this interlocutory application that it is arguable that the agreements contain such a term. To accept that does not of course mean that an injunction should be granted.
[1] (1977) 180 CLR 266.
The next point to note is that counsel for the plaintiff made a great deal of submissions that there was in truth not a proper basis upon which the relevant provisions, clauses 4.1(f) and 12.2, had been breached.
I consider that the contentions in that respect are barely arguable, if at all. Even if they may be arguable or such as to raise a prima facie issue, there is the difficulty that the defendants are able to rely on the various matters of fact which they raise in their affidavits and which have been elaborated upon by counsel for the defendants in his written and oral submissions and which provide several bases for termination.
Although it is desirable that on the hearing of an application for an interlocutory injunction, a judge say as little as possible of a conclusionary nature as to the merits, it does seem to me, as at present advised, that there were indeed grounds of substance for termination.
But let us say that there is established a prime facie case that the termination was improperly made and was therefore ineffective for its purpose under either agreement, the question remains whether, having regard to relevant discretionary considerations and considering the case overall, injunctive relief should go.
From the point of view of the plaintiff, the situation is very difficult and is one in which it is confronted with immediate financial detriment. That detriment has been developed by Mr El-Hage in an affidavit sworn on 22 November. He is the plaintiff's accountant, and has identified what, in his opinion, are relevant heads of loss if the injunction is not granted, and the plaintiff is not re-established in the business. There are the following costs, he says. The establishment and set up costs of the franchise, $52,750.84; ongoing costs including leases, rent, wages and superannuation incurred, for the period 15 October 2008 to 24 November 2008, $14,632.54, and ongoing, to be incurred, $11,318.94. Then, in addition, will be loss of profits not earned in the period of the dealers agreement. He and the plaintiff have prepared a projected profit and loss statement to assess profitability, which seems to have as its bottom line a total projected net profit for the period 1 October 2008 to 30 September 2011 of $3,837,045.
What this demonstrates is that the detriment to the plaintiff is calculable in money terms. Of course it is a significant detriment, no-one understates that, and of course the suffering of it would be much to be regretted and I take it into account as one of the relevant considerations. But, as I have mentioned, it is apparent that the damages suffered here are able to be ascertained in money terms. The case is not like one sometimes has where damages cannot readily be calculated in money terms and the loss is thereby irreparable.
Nevertheless, counsel for the plaintiff submitted that damages was not an adequate remedy. That was for the obvious reason that if the injunction is not granted the plaintiff would be prevented from developing the business in respect of which it has undertaken a deal of expense.
It was also submitted by counsel that if an injunction is not granted, it would not be possible, given the allegations made by the defendants, for the plaintiff to enter into another agreement to provide similar services in the telecommunications industry. Perhaps the submission was meant to be generally in relation to the telecommunications industry, I am not sure, but whether it is taken at its widest or more narrowly in the sense of the business type that was commenced, it is a wide proposition and, as to it, I note that the restraint of trade covenant that stood against the plaintiff has been withdrawn in the sense that it has been stated it will not be enforced, thus leaving the plaintiff free to engage in the like business.
The submissions that were made on behalf of the defendants raise a great many factors of a discretionary nature. One of them is that damages is an adequate remedy, and that the defendants have ample means of meeting a judgment. I did not understand that to be questioned. Another is that the plaintiff is seemingly not good for an undertaking for any damages payable if an injunction were granted and the case failed at trial.
Another important consideration is found in the commercial relationship under the sub-dealer agreement. If it truly is a franchise agreement there is the essential characteristic of the mutual obligation of trust and confidence of one party in the other, which has been lost. Even if the sub-dealer agreement is not truly a franchise agreement the point remains whether an injunction is to be granted for the purpose of forcing, so far as the Court can, parties to work together when that mutuality of trust and confidence has been lost.
It seems to me that what lies at the heart of this case is the impropriety exposed in the confidential exhibit CW3, considered in light of the relevant contractual obligations and requirements on the plaintiff. That is a relevant matter for me to consider in determining whether an injunction should be granted, the whole purpose of which is to drive the parties back into a contractual working relationship when the background is what is exposed by the affidavits.
I am not influenced by the allegation, if that is what it is, of the plaintiff having engaged in fraudulent conduct. Counsel for the plaintiff made repeated references to that as the defendants’ allegation. I regard only the objective facts and they point to what has been considered, and in my view was reasonably open to be considered, as serious breaches by the plaintiff.
The next relevant consideration is that the grant of the injunction involves forcing the parties under the sub-dealer agreement together in circumstances in which the business had operated for a short time and has not been operating for a period now of some three weeks or more. It involves restarting the business, in particular it requires Telstra to voluntarily reactivate the supply of telecommunication services. I have no power over Telstra in relation to that, no injunction is sought against it, and I cannot act on the premise that if the injunction sought were granted, that Telstra would, as it were, withdraw its termination letter of 10 November, and reactivate the old agreement or enter into a new agreement with the plaintiff. It must be no more than speculation that it would and that is not a proper basis upon which to act, in my opinion. To expose that element goes also to underline the difficulty that the injunction faces. Although it is expressed in a negative way, to operate it has to have mandatory effect. The fact is that services have ceased to be provided by Telstra and the defendants. In other words, the defendants’ notice of termination has been acted upon, it has been implemented, what is sought is to resuscitate something but I do not know what orders, apart from a mandatory interlocutory order would be required to achieve the result.
In all of the circumstances, regarding the matter overall as one has to under the Beecham test[2], I am of the view that overwhelmingly for reasons of discretion, it is not appropriate to grant an injunction. The application will be refused with costs.
[2] Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618.

[2008] VSC 534

27 November 2008